Shareholders rights

Question 1

Board of directors decisions made by?

Answer 1

Ordinary majority

Question 2

board powers come from?

Answer 2

Articles

Question 3

who are the members in general meeting + stat

Answer 3

112 CA 2006
1 subscribers of first memorandum (basically first shreholders).
2. every other person in members register

Question 4

How do members make decisions

Answer 4

1. resolutions at general meetings (all reg. comp.)
2. OR written resolutions (private reg. comp.)
3. OR Unanimous assent (common law)

Question 5

Ordinary resolutions require + stat

Answer 5

simple majority of votes (above 50%) s 282 (1) CA 2006

Question 6

Special resolutions require special majority of + stat

Answer 6

75% at gen. meeting s 283 (1)

Question 7

How come shareholders hold ultimate power + stat

Answer 7

they may dismiss directors by ordinary resolution s.168

Question 8

Certain matters can only be determined by special resolution like what?

Answer 8

Altering articles s21

Question 9

Art 4 of model articles:

Answer 9

Shareholders can instruct directors (not)to take certain action

Question 10

Overview general meeting + stat

Answer 10

• All members=right to attend GM
• Members attend&vote personally, audio-vis, thru proxies
• Right to appoint proxy s325
• PLCs must hold annual meetings s336(1)

Question 11

members with full paid shares of at least 5% or at least 100 members with shares paid up to £100 each on average may: +stat

Answer 11

• require company to give notice of a resolution that they want tabled at next AGM s338
• Require that a matter be included on AGM agenda

Question 12

Rules regarding notice for GMs + stat

Answer 12

s307

• at least 14 days notice gen. required
• for PLCs 21
• for ‘traded comps.’ 21 days
• GMs that aren’t Annual GMs can be called by directors (if its 8months till next AGM) s302
• directors can be instructed to do so by members representing 5% of paid up shares (at least) s303
• courts have discretionary power to order GM s306

Question 13

Effectiveness of GMs

Answer 13

• do little to empower because
• attendance impractical as members are round globe
• large %age of shares held by institutional shareholders (organisations)
• proxies=matters decided before meeting
• important matters, usually rubber stamped

Question 14

Can shareholders effectively hold board accountable?

Answer 14

1- in reality, board of PLC holds much power
2- issues e.g. distance mean that shareholders dont interfere with board
3- argument: director=not accountable. esp. in big businesses where short term finance performance satisfies shareholders
4- inadequate supervision of directors can lead to comp. collapse and finance scandals

Question 15

Duty in s172(1) (effort to remedy lack of director supervision)

Answer 15

director must act in a way, in a good faith, that he believes will promote the success of company for members as a whole. In doing so they must HAVE REGARD TO (list of 6 in stat book)

is ‘have regard’ too vague to have effect on director conduct?

Question 16

Company const.: what stat say all companies must have own articles or prepare own (to submit to registrar)

Answer 16

s.18

Question 17

If own articles aren’t submitted…
also if own articles are silent on an area…
+stat

Answer 17

model articles will be used s20.

Question 18

Nature and effect of AoA + stat and case

Answer 18

• if it conflicts with stat., stat. wins

- AoA can circumvent this (bushell v Faith [director in question votes worth more])

Question 19

articles are given contractual effect as between member and company by virtue of

Answer 19

S33(1) aka stat contract

Question 20

Strange characteristics of stat. contract

Answer 20

• can’t be set aside for mistake, misrep duress or undue influence
• implied terms can’t be added
• can only be altered by special resolution (s.21)

Question 21

Enforcement of articles by COMP. AGAINST MEMBERS + case

Answer 21

1. company may enforce any provision
2. If member inconsistent with articles he may be sued
3. Hickman AoA contained arbitration clause [must arb before taking comp. to court]. Hence, he couldn’t effectively sue when he didn’t adhere
4. Articles can’t remove member stat. rights

Question 22

Enforcement of art. by MEMBERS AGAINST OTHER MEMBERS + cases

Answer 22

1. unclear if this is possible
2. Welton v Safferey: member incositent with AoA-wrong against company. other member is improper claimant.
3. Rayfield v Hands: member able to invoke stat contract to enforce pre-emption (sell share? must offer)rights against other members
4. Gerrie: court assumed s33(1) created rights between members (though this wasn’t the issue.
   - perhaps, if breach is against comp&members, then impossible BUT
   - If against memebers alone? Possible

Question 23

Enforcement of art by MEMBERS AGAINST COMP. + stat

Answer 23

• not clear to which company is a party to contract
• controversy due to predecessor sections
  though s33(1) says ‘covenant on part of company and each member’
• s14 CA 1985 says ‘as if it had been signed and sealed by each member’ company left out
• Suggests company is not deemed to have covenanted

Question 24

Insider rights + cases

Answer 24

• member can sue company for breach of any insider rights contained in const.
• insider rights: rights conferred by articles on members IN THEIR CAPACITY AS members
• e.g. Wood v Odessa Waterworks (right for memeber to insist declared dividend be paid in accordance with articles)
• Pender v Lushington: right of member to vote at general meeting in any way he chooses
• Gerrie: right to compel comp. to arrange fair valuation of shares which one wishes to sell (here, shares had to be offered 1st to existing members&comp. would arrange fair valuation)HELD: shareholder could enforce this against comp. under s33(1)

Question 25

Insider rights difficulty + case

Answer 25

difficult to differentiate:

1. act by officer of company amounting to breach of members personal rights by company
2. One which amounts to wrong against company (foss v Harbottle-company is proper claimant here)

Question 26

Irregularities in internal management are… +case

Answer 26

wrongs against company:

• Macdougall v Gardiner: GM: dismissal of chairman dep. chair allowed delay to another meeting. AoA said adjournment could be challenged by poll (show hands). Claimant demanded poll, dep chair refused it (similar to Pender v Lushington-wrong against MEMBER)
• Here it was wrong against comp as chair didn’t follow rules (like in pender)
• Difficulties as above usually seen involving GMs

Question 27

Enforcement of articles by member against company: outsider rights + case

Answer 27

• rights conferred on members by articles. NOT concerned with membership
• concerned with capacity as an outsider (director, solicitor, etc)
• Hickman: outsider rights not enforceable against company (general rule)
• e.g. Eley: right of a member to be a comp. solicitor.(was dismiessed early as solicitor. couldn’t invoke stat contract as it is outsider right. an acc contract would’ve been better)

Question 28

Outsider rights enforced by member qua member +case

Answer 28

• member can compel company in capacity as member to act in accordance with articles
• Quin&axten v Salmon: right to vote=ignored. Enforced qua member.
• HOWEVER: Beattie v E&F Beattie ltd: BEING sued in capacity as director, in no position to invoke AoA via sat. contract
• being sued in capacity as director locked him in, so he couldn’t act in capacity as member

Question 29

Foss v Harbottle

Answer 29

Every shareholder has right under stat. contract to compel company to act in accordance with all its articles

Question 30

Shareholder agreements

Answer 30

• uncertainties concerning stat. contracts mean members get into shareholder/membership agreements
• these can cover, voting rules, share transfers & appointment if directors
• common in smaller private comps
• conventional contracts: normal remedies for breach
• no need for qua member, insider or outsider rights
• cant be varied by special majority, not a public document